Elexon plans to increase the Credit Assessment Price (CAP) adds to fears over energy supplier failures in the coming months

Industry experts are concerned that proposals made by Elexon to raise the Credit Assessment Price could lead to more energy supply business failures in the coming months as a combination of issues caused by the Covid-19 pandemic, record-high wholesale prices and Renewable Obligations payments potentially create a perfect storm.

What is the Credit Assessment Price (CAP)?

Why the change?

Elexon launched the consultation after the divergence between the CAP and the reference price, which is taken from the average monthly forward market prices.

An adjustment to the CAP is triggered when the absolute difference between the CAP and the reference prices surpasses 10% of the CAP to the nearest pound. Currently, the trigger value is at £10/MWh.

If Elexon confirms the new value of £113/MWh it will mark the highest CAP level since it was first introduced back in March 2001.

Also read: Ofgem confirms a record high increase to the Energy Price Cap as 26 Energy Suppliers sign up to fresh commitments to help struggling consumers

Why could the CAP Rise lead to energy supplier failures?

According to some industry experts, increasing the CAP could have a severe impact on smaller energy suppliers.

“The Credit Assessment Price controls how much money suppliers need to put down as credit. This winter was already going to be tough for rookie suppliers and this rise could undoubtedly lead to even more supplier failures.

“It certainly has potential to do so because it’s another call on their cash flow. Like any other business, if you are in financial difficulties and are then required to put down more credit, that is less money that is available for you to do other things with.

“I would stress that not all small suppliers are the same. Some manage themselves very carefully and keep a very close eye on this sort of thing. However, there are others pricing below cost, that don’t necessarily have the reserves and follow the same financial rigours as their counterparts,” said Tom Steward, a former senior regulatory manager at Good Energy in an interview with Utility Week.



Also read: Worries grow over possible wave of small energy supplier failures in October

What happens next?

The consultation on whether the CAP value should be increased ends today (August 17^th). If all of those who responded agree to a hiking of the value, then the increases will be introduced on September 8th.

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Further Reading 

Government announces new plans to tighten rules around green energy tariffs and prevent greenwashing

Energy Supplier Switching falls to a three year low despite rising Energy Price Cap

Competition and Markets Authority (CMA) provisionally sides with Ofgem over its plans to reduce Energy Firms Returns

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